What counts as an operating expense?

The test, from IRS Publication 334: an ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. It does not have to be indispensable to count.

The common Schedule C lines

Schedule C Part II lists expense categories line by line. Here are the ones small businesses use most, with the IRS's own grouping (see the Schedule C instructions):

Advertising (line 8) Ads, sponsorships, business cards, website marketing costs.

Office expense (line 18) Office supplies, postage, and similar day-to-day items.

Supplies (line 22) Consumable supplies used in your work that aren't part of inventory.

Legal & professional (line 17) Accountants, lawyers, tax prep, and other professional services.

Rent or lease (line 20) Equipment rental, and rent on business property other than vehicles.

Utilities (line 25) Utilities and phone for a business location (not your home — that's the home office deduction).

Anything deductible that doesn't fit a named line goes on line 27a, "Other expenses" — software subscriptions, bank fees, dues, training, and shipping to customers usually land here.

What doesn't count

Personal expenses. If it's partly personal (a phone you use for both), only the business portion is deductible.
The products you sell. Those are cost of goods sold, handled separately.
Long-lived equipment. A laptop or machine that lasts years is an asset, not an operating expense (though many items under $2,500 can still be expensed immediately).
Fines and penalties. Parking tickets and government fines are never deductible, even when incurred on business.

Why the subcategories matter

Each Schedule C line is reported separately, so "everything is an expense" isn't enough at tax time. Accurate subcategories mean your year-end report maps directly onto the form — and patterns (like how much you really spend on software) become visible during the year.

How this maps in Tidy Orders

Tidy Orders' Operating expenses category carries subcategories — advertising, office expenses, software & online services, shipping, legal & professional, and so on — each mapped to its Schedule C line. Your year-end report rolls them up line by line, so what you see is what goes on the form.

From the IRS

Publication 334, chapter 8 — Business Expenses — the "ordinary and necessary" test and what you can deduct.
Instructions for Schedule C — the definition of each Part II line.
Publication 535, Business Expenses — the deeper reference for less common expense types.

This guide is education, not tax advice. For your specific situation, talk to a CPA or enrolled agent.